Bill C-13, Keeping Canada’s Economy and Jobs Growing Act, which received Royal Assent on December 15, 2011 includes amendments to the Canada Pension Plan requiring CPP contributions on amounts received by an individual under uninsured, employer-paid disability benefits-i.e., taxable income paid from these plans.

Generally, there are two methods to pay for benefits under an employer-funded disability plan. Either the employer directly pays the benefits or an insurance company or other third-party administrator pays the benefits on the employer’s behalf under an administrative services only (ASO) agreement. These benefits are now subject to CPP deductions.

The change has a stated retroactive effective date of January 1, 2006, although Canada Revenue Agency  has made clear that Employers should begin paying the tax on January 1, 2012.

By way of background, case law has made clear that Employers must deduct EI premiums from employer-paid, self-insured disability plans. * Bill C-13 requires Employers to deduct CPP contributions as well, and overturns a 2012 decision of the Federal Court of Appeal decision (Toronto Transit Commission v Canada (Minister of National Revenue) 2010 CRA 233) , where it was determined that CPP contributions did not have to be made under a long-term, employer-paid disability plan that was not insured.  The court in this case, based its decision on its interpretation of the CPP which limited the requirement to make CPP contributions to remuneration that was for active employment. Bill C-13 amendments to the CPP will change the relevant provisions of the Act to be similar to the broader language under EI legislation.

*see Canada (Attorney General) v National Bank of Canada and Universite Laval v Canada (Minister of National Revenue)